Research Output
Rating to economic profit: Valuation properties, implementation issues, and the justification of target prices
  This study offers a comprehensive theoretical and empirical analysis of a fundamentals-based investment criterion (HSBC’s Rating to Economic Profit – REP). By employing a large sample of US-listed firms over a 12-year time-period and conducting univariate, multivariate and portfolio analyses, we provide robust empirical results that support the ability of REP to explain contemporaneous stock market valuations, justify financial analysts’ target prices, and predict one-year ahead stock returns. Through content analysis of selected financial analysts’ equity research reports, we also provide some descriptive evidence of the usefulness of accrual accounting numbers over dividends for valuation purposes. To the best of our knowledge, this is the first academic study that offers a comprehensive analysis of REP as a value-based stock screening method that should be of interest to market-based accounting researchers, valuation educators, and capital market participants.

  • Type:

    Article

  • Date:

    26 November 2023

  • Publication Status:

    In Press

  • Publisher

    Informa UK Limited

  • DOI:

    10.1080/10293523.2023.2269669

  • ISSN:

    1029-3523

  • Funders:

    European Commission

Citation

Ballas, A., Chlomou, G., & Demirakos, E. (in press). Rating to economic profit: Valuation properties, implementation issues, and the justification of target prices. Investment Analysts Journal, https://doi.org/10.1080/10293523.2023.2269669

Authors

Keywords

rating to economic profit (REP), price-to-book, return on equity, financial analysts, equity valuation, target prices, stock returns

Monthly Views:

Available Documents